Over the past weekend, blurry photos of an alleged next generation iPhone managed to get into Engadget‘s hands. What started out as a rumor and then thumbed by netizens as being a fake turned out to indeed be the real McCoy. Initially thought to be a Japanese clone, MacRumors has since retracted that story. The tale went like this: an Apple engineer was drinking at a bar in California and left a new iPhone prototype disguised in a case to make it appear to be a 3GS. Some one managed to find the device, waited around the bar, but no one came to claim it. He later discovered that his find was a never before seen iPhone incognito. Guy shops it around and Gizmodo buys it for $5,000. According to Gizmodo, the engineer lost the iPhone LAST month on March 18. Gizmodo managed to acquire it last week.

Gizmodo extensively photo/videographed the prototype iPhone and determined that what they purchased was bonafide genuine Cupertino designed hardware. The Gawker Media technology blog (who was silent the entire weekend while Engadget enjoyed their traffic) published their next generation iPhone story on Monday and quickly racked up over three million page views (now at the verge of reaching 7 million).

Netizens continue to nitpick and cry foul at the discovery due to the nature of the iPhone’s design. The lost prototype appears to be a departure from Apple’s “unibody” and “curved” design mantra that they have slowly pushed onto all their hardware lines, including their recently released iPad.

Brian Lam, editorial head at Gizmodo, received a few calls from Apple requesting the phone back. He fired back with the request that Apple officially acknowledge that their find is a real Apple device. Apple issued a letter to Gizmodo late Monday night and Brian happily said that Jason Chen, editor in chief at Gizmodo who was in possession of the prototype, would be more than willing to send it back to Apple.

That’s not all. On Monday evening, while the tech blogosphere was going nutso (this story was even on Tuesday’s The View of all places to talk tech!), Gizmodo’s Jesus Diaz posted a story insisting they were on the cusp of discovering who was the poor Apple engineer who lost the super secret device. They discovered that it was a person named Gray Powell. They promptly plastered screenshots of his Facebook profile picture and Flickr accounts for the world to see.

Netizens quickly gripe again and call Gizmodo a douchebag for exposing the Apple employee, claiming that he will never get a job again anywhere and that he is scarred for life. Web commentators continue to slam Gizmodo for their shoddy “investigative reporting” by buying the prototype and then proceeding with unnecessary trouncing on Powell.

To add more damage points, Brian Lam then posts a snarky “apology” wishing Powell good luck and stating that tomorrow is another day. (The apology has since been retracted).

Now that you’re all caught up on the story, I’d like to say something to all the netizens that are complaining about Gizmodo’s journalism ethics: